The Federal Reserve announced that it would double the pace at which it would taper its quantitative easing program.1 Furthermore, it signaled that it could hike interest rates three times next year.
As I noted last Sunday, accelerated tapering was broadly expected with unemployment falling and inflation climbing.
However, the prospect for three quarter-point rate hikes from the Fed in 2022 was a bit more aggressive than forecast by economists.
“The new rate projections marks a major shift from the last time forecasts were updated in September, when officials were evenly split on the need for any rate increases at all in 2022,” Bloomberg reporters Matthew Boesler and Olivia Rockeman wrote. “The new projections also showed policy makers see another three increases as appropriate in 2023 and two more in 2024, bringing the funds rate to 2.1% by the end of that year.“
Interestingly, the stock market rallied in the wake of the Fed’s announcement, which came at 2 p.m. ET on Wednesday. The S&P 500, which had been trading in the red ahead of the news, ended the day up an impressive 1.6%.
With the Fed sounding more hawkish, why didn’t the stock market fall?2
